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Persistence and Nominal Inertia in a Generalized Taylor Economy: How Longer Contracts Dominate Shorter Contracts

  • Engin Kara
  • Huw Dixon


    (Economics Univeristy of York)

n this paper we develop the Generalize Taylor Economy (GTE) in which there are many sectors with overlapping contracts of different lengths. We are able to show that even in economies with the same average contract length, monetary shocks will be more persistent when there are longer contracts. In particular we are able to solve the puzzle of why Calvo contracts appear to be more persistent than simple Taylor contracts: it is because the standard calibration of Calvo contracts is not correct

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 87.

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Date of creation: 11 Nov 2005
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Handle: RePEc:sce:scecf5:87
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